California Watch

Here Come More Tax Increases!

The California Supreme Court this week issued a stunning blow to California’s taxpayers with a convoluted ruling that lets local governments collude with public-employee unions to raise certain taxes without a supermajority vote.

Californians already must deal with a state government that views tax hikes as the solution to every problem. They will soon see the same approach dominate at the municipal level, as well.

If conservative groups don’t respond with an initiative to overturn the ruling, this could be the beginning of the end of longstanding property-tax protections first enacted with 1978’s tax-limiting Proposition 13 and 1996’s Proposition 218. Ironically, two of the court’s most liberal members — both appointed by Gov. Jerry Brown, and one a former Obama administration official — were the only justices to see the dangerous ramifications here.

The case is the California Cannabis Coalition v. the City of Upland. The cannabis group in 2014 collected signatures to place a measure on the ballot to overturn the city’s ban on medical marijuana dispensaries. The measure would also have imposed a $75,000 annual fee on dispensaries. The city deemed that the fee constituted a “general tax” under the provisions of Prop. 218, and therefore could not be placed on a special-election ballot.

The Cannabis Coalition sued. As the case meandered through the courts, the proposal ultimately was put up for election and overwhelmingly defeated by Upland’s voters. The high court took up the case, even though it was moot, based on the significance of the underlying question of what rules apply to local tax-related initiatives.

Unfortunately, the court concluded that, while initiatives placed on the ballot by city officials are subject to a two-thirds vote requirement, those placed on the ballot by voters (who gather signatures from fellow voters) are not subject to a supermajority. “The common understanding of local government does not readily lend itself to include the electorate, instead generally referring to a locality’s governing body, public officials and bureaucracy,” the court explained.

But Justice Leondra Kruger, the former Obama deputy solicitor general, offered a strong dissent, noting that “a local tax law passed by initiative is still a local tax law, just like any law passed by elected officials — a law of the local government, to be enforced by local government, for the purpose of raising revenue for local government.”

With Proposition 218’s protections eroded, expect to see union-friendly city councils collude with public-employee unions to impose generous new contracts funded by new taxes. In fact, the court majority raised that hypothetical situation in its ruling. Under California law, once sufficient signatures are collected, a city council would have the choice to enact an ordinance by council vote or immediately place it on a special election ballot for a simple-majority vote of the people. Essentially, this would allow a council to vote for a special tax without voter approval, a potential scenario the court majority didn’t appear to find all that troubling. “These facts are not presented here, and we decline to take up what would happen should they arise.” As a longtime observer of local governments, I can assure you the above-mentioned scenario will take place with regularity.

In the 1970s, California homeowners — and the elderly, in particular — were being priced out of their homes as values soared and county assessors ratcheted up property tax bills in tandem. The ensuing taxpayer revolt, which helped lift Ronald Reagan to the presidency, continues to protect modern-day Californians, whose property assessments may only inch up 2 percent a year, even as prices again go crazy.

That limit was included in 1978’s Proposition 13, which also rolled back property tax rates to 1975 levels and limited the maximum amount of any ad valorem tax to 1 percent. To keep local governments from making up their lost revenue with an avalanche of local bond measures, the proposition wisely required a two-thirds majority vote to pass such taxes.

But government officials can be amazingly clever when it comes to shaking down residents for new tax revenues. The locals managed to circumvent Prop. 13 by creating certain assessments, special taxes, and user fees that weren’t covered by the initiative’s language. In 1996, voters approved Proposition 218, which plugged that gaping loophole by requiring a two-thirds public vote for most of these measures. With this ruling, Prop. 218 has been greatly weakened.

Prop. 13 had rightly been viewed as the third-rail of California politics, given that voters have been reluctant to raise taxes on themselves. But as the electorate becomes more Democratic, there’s been more of an effort to at least talk about chipping away at the protections. Public-sector unions have mulled a ballot measure that would create “split rolls,” thus removing commercial properties from Prop. 13’s protections. Yet few of us worried the courts would be the main problem.

Some analysts argue that, despite the justices’ discussion of vote thresholds, the ruling ultimately only applies to election timing. Others are less sanguine. “If local initiatives are exempt from critical taxpayer protections, then public agencies could easily deny taxpayers their rights by colluding with outside interests to propose taxes in the form of an initiative,” said Jon Coupal, president of the Howard Jarvis Taxpayers Association, which was named after the renowned Prop. 13 activist.

Even under current, taxpayer-friendly voting rules, California taxpayers are only as safe as their local voters. For instance, San Francisco had for a century one of the best-funded pension systems in the state because the city charter requires a citywide vote for all pension increases. But voters have approved approximately 10 pension hikes in recent years, thus driving up the city’s unfunded liabilities.

And data from CaliforniaCityFinance.com found that voters approved 72 out of 89 local tax-hike initiatives on the June 2016 ballot. Voters even passed most of the measures that required a two-thirds vote for approval.

As the state becomes more liberal, there’s little that even the best-drafted initiative can do to stop the endless tax increases, which increasingly fund the outrageous salaries and benefits earned by California’s public employees. Still, the state Supreme Court’s decision may end up being the last straw for more of the state’s middle-class homeowners.